When it comes to savings and investing, we all are hard-coded to always look for the better option. But what happens when you only get one chance to make the right decision every year, as in the case of Individual Savings Accounts (ISA)?
With the stakes this high, it is imperative that you spend enough time searching for the best ISA account with the highest rates. But who has the best ISA rates today? And are favorable returns the only thing you have to put into consideration when deciding on the best ISA? We believe that good rates should be accompanied by an even better reputation.
For this reason, we have tried and tested the best different ISA account providers and come up with a list of what we consider the most reputable service providers with the highest rates.
Table of Contents
What is an ISA?
Put simply, an Individual Savings Account is a class of investment and savings with favorable tax status. These include the fact that amounts deposited into this account are tax exempt. And so are earnings accrued from investments made through this accounts. There is a caveat though, as there is a limit to the amount of money you can deposit into this account per year as well as the number of accounts you can open and deposit to within the same year.
In the United Kingdom, for instance, you can only save a maximum of £20,000 into a single ISA account for the financial year 2019/2020. Extra deposits into the same or different ISA accounts are subjected to the income and capital gains taxes.
What are the different types of ISAs currently available?
Cash ISA has all the features of an ordinary savings account, with the only exception here being the fact that interests earned from the account are tax exempt. You can open the cash ISA with your bank or building society. Note that the maximum allowed deposit in one financial year for a Cash ISA is £20,000.
This refers to the tax-free money invested with ‘Qualifying investments.’ Your investment ISA service provider has the right to express their discretion in determining what stocks and equities ‘qualify’ for their investments. Some of the most popular though include cash, Unit trusts, and public debt securities like treasury and corporate bonds as well as exchange-traded shares of listed companies.
These were created in the appreciation of the fact that there exist numerous other investment options outside the ordinary stocks and shares markets. Ideally, these will only be provided by Peer to peer lending platforms that are registered and regulated by FCA and HM Revenue & Customs. The maximum you can invest with an IFSAS P2P lender is capped at £20,000 for every financial year.
Formerly known as Help-To-Buy ISA (HTBISA), Lifetime ISA is specially designed to help you save for the future or encourage you into pursuing a once-in-a-lifetime objective like buying a house. Virtually anyone above 18 years and below 40 years can open a lifetime ISA account that matures upon hitting 50 years. You are, however, not allowed to invest more than £4,000 into this account per financial year. The most unique thing about this is that the government pledges to top you up with 25% of your invested amounts every year.
As the name suggests, this refers to an ISA account made available to children under the age of 18 and primarily fall within the cash or stocks and shares category. Parents/guardians can open the accounts for their children below 16 years whose maximum allowable per year stands at £4,638. A child above 16 years of age can, however, open their own accounts or have the accumulated deposits in the junior account that has their guardians as co-signatories transferred to their new individual savings account.
Why do you need an ISA?
- Interest-free incomes: No one fancies the idea of income and capital gains taxes eating 20% to 40% of their incomes. Investing or saving your cash in the tax-free ISA, therefore, goes a long way in ensuring that you legally avoid these taxes.
- Investments let you chose your risk level: If you were to turn these funds into an investment ISA, what would be your risk tolerance level? Are you an all-or-nothing aggressive investor or the conservative type that is more concerned with the protection of their investments than the interests they gain? Most investment ISA service providers have come up with different investment options with varying levels of risk ranging from the hugely conservative to the most volatile niches. And you have the option of deciding how your money is invested.
- You still have access to your funds: Need your cash back? The broker is required to make it available to you within 15 days for cash ISA and within 30 days for shares and stocks ISA, no questions asked. Plus you are also free to transfer your funds to another ISA service provider if you feel like the current investor offers below-average interest rates.
- Adds to your tax-free allowances for the year: ISA doesn’t affect your current free tax allowance and will therefore not count as part it. Rather ISAs serve to widen the tax-free income scope by broadening the amount of your income that is not subject to taxes.
- You can either save or invest: The ISA accounts types are relatively diversified and separated into both savings and investment accounts. You, therefore, have the option of saving for such future goals as retirement or buying your first house with lifetime ISA account or compound your wealth by investing in stocks and shares ISA.
Best ISA rates for 2019
Saving and investing your way out of the often high taxes is no longer an illusion. Any ISA ensures that you add over £20,000 into your taxable allowance every year. But it is often not enough to shield this money from income and capital gains taxes. You need to invest in a platform that guarantees highest returns and maximal protection of the funds from unnecessary risks.
Most of the accounts we have listed here make it possible to invest your finances in a low risk and low volatile markets and still promise attractive interest rates, higher than you can ever get with ordinary savings account with your banker. It is a high time you embraced ISAs both as a tax reduction measure and a viable investment opportunity.
What different types of ISAs are there?
There are a number of different ISAs available in the UK. If you are looking for a specific type, click on one of the links below to read a detailed guides about it.
What is ISA?
The individual savings account (ISA) is a tax-free saving or investment account that allows you to deposit up to £20,000 annually. Different ISAs that allow for investing into varied sectors of the economy like P2P lending and stocks and shares have, however, cropped up over the years effectively giving you the freedom to determine where to invest your cash.
Who can open an ISA?
Virtually everyone above 16 years of age and a permanent U.K resident can apply for an ISA account. Children under the age of 16 can also have their guardians open and run a junior account on their behalf.
How much do I need to start saving in an ISA?
There is no minimum to the amount of cash you can deposit into an individual savings account.
How much can I save/invest in an ISA?
The maximum amount of money you can deposit into an ISA is relative to the type of ISA account you want to invest in. For instance, if you wish to open a Cash or Stocks and Shares ISA, the maximum allowable here is capped at £20,000. Junior and Lifetime ISA, on the other hand, have their maximum allowable capped at £4,000 and £4,638 respectively as at 2019.
What is the difference between an ordinary savings account and the ISA?
First off, the amounts deposited in your ordinary savings account with your banker and interests gained here count towards your taxable incomes while the ones in an ISA don’t. Your deposits with an ordinary savings account can only attract the standard bank interest rates while the ISA gives you the freedom to transfer your investments freely into different types of ISAs that offer above average returns.
Is the interest accrued on an ISA taxed?
When can I transfer my savings/investments to another ISA service provider?
You have the right to freely transfer deposits from one ISA service provider to another. You can, however, only transfer deposits from one type of ISA to a similar account provided by the different banker. For instance, you can only transfer Cash ISA from platform A to another Cash ISA to platform B and not to a Shares and Stocks account. Note that you are better off letting your ISA company conduct the transfers as withdrawing funds from one and investing it with the another more than once in a year often leads to the cancellation of the forfeiting of the tax-free advantage.